California Labor &
Employment Law Blog
Nov 20, 2009

Non-Compete Agreements Take Another Hit in California

Topics: Court Decisions

Another California court has refused to enforce non-compete and non-solicitation clauses in employment contracts signed by California employees. In Dowell v. Pacesetter, Inc., the employees at issue worked in various capacities for a biotech company. Upon accepting employment, they signed an agreement providing that for 18 months after termination of employment they would not render services for a competitor if such service could aid the competitor in competing by application of "confidential information" the employee had access to during employment. "Confidential information" was broadly defined in the agreement to include "information disclosed to me or known by me as a result of my employment by the company, not generally known to the trade or industry in which the company is engaged, about products, processes, technologies, machines, customers, clients, employees, services and strategies...;.."

The agreement also contained a non-solicitation clause providing that for 18 months following termination of employment the employee would not solicit business from, sell to, or render service to any customers with whom the employee had contact during the last 12 months of employment.
The court determined that both the non-compete and non-solicitation clauses were void and unenforceable under California Business and Professions Code section 16600, which provides that contracts in restraint of trade are prohibited. The court further determined that the use of the agreements constituted unfair competition in violation of Business and Professions Code section 17200. The court rejected the employer's arguments that the clauses were enforceable because they were tied to protection of trade secrets and confidential information. The court stated that it doubted the continuing validity of any "trade secret exception" to 16600's prohibition on non-compete agreements, but reasoned that regardless of whether any trade secret exception still exists, it would not apply in this case because the agreement's definition of "confidential information" was much broader than "trade secret" information as defined under California law. By defining "confidential information" so broadly and precluding former employees from using such "confidential information," the employees were effectively precluded from competing altogether.

This decision is not welcome news for employers utilizing confidentiality and non-solicitation agreements for California employees, but employers should be mindful of the continuing trend of California courts in refusing to enforce these agreements.

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For over 25 years, CDF has distinguished itself as one of the top employment, labor and immigration firms in California, representing employers in single-plaintiff and class action lawsuits and advising employers on related legal compliance and risk avoidance. We cover the state, with five locations from Sacramento to San Diego.

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About the Editor

Robin Largent has a regular presence in California state and federal courts and has been lead defense counsel and appellate counsel for large and small California employers in litigation (and arbitration) ranging from individual discrimination and harassment claims to complex wage and hour representative and class actions. She also leads the firm’s appellate practice, having substantial experience and success handling appeals, writ petitions, and amicus briefs in both state and federal court on issues such as class certification (particularly in the wage and hour arena), manageability and due process concerns associated with class action trials, exempt/non-exempt misclassification issues, meal and rest break compliance, trade secret/unfair competition matters, and the scope of federal court jurisdiction under the Class Action Fairness Act.
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